Complexity of new indexed annuities causing concern

By Greg Iacurci

Insurers are using ‘hybrid’ indices as a way to differentiate themselves, but critics contend the products are less transparent, more confusing and don’t add financial benefit

The way indexed annuities have evolved has led to concern from some corners of the insurance market, with some critics saying insurers have developed increasingly complex products in hopes of standing out in a competitive market.

Indexed annuities are a type of fixed annuity that tracks a market index, such as the S&P 500. Some observers are wary of the surge in products using a “hybrid” market index, which asset managers often license to insurance companies.

Critics say such indices are less transparent and more difficult to understand than well-known alternatives such as the S&P 500. They also contend hybrids don’t offer more of a financial benefit than a traditional market index.

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